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Financial freedom – what to do with your pension

pension planning

With so many options now available for accessing your pension pot, working out what to do and how to do it can become so confusing that people often try to avoid thinking about it at all.

British citizens have had greater freedom for accessing their private pension savings since April 2015; upon reaching 55 years of age, you are able to decide what to do with your money, even if you’re still working.

Depending on the pension scheme, you may be able to access your pension in a variety of ways:

  • taking out cash lump sums
  • taking a variable income through drawdown (known as ‘flexi-access drawdown’)
  • having access to a guaranteed income under an annuity
  • or a combination of the above


For those in a final salary pension scheme, a pension transfer could be an option to access these freedoms.

With so much choice, it is understandable to feel daunted by the prospect of what to do with your pension and, more importantly, how to manage it.

How much money should you take out every year? Should you take any money out at all? Should you secure yourself a guaranteed income? Deciding an appropriate investment strategy is no simple matter.

Ultimately, there are many things to consider as you save for retirement, and good pension planning will help to ensure your future income will allow you to sustain your desired lifestyle.

What, then, are your retirement income options?

Firstly, it is essential that you obtain professional financial advice and guidance before taking any action; George Square Financial Management has provided an overview of the main options below:

  1. Keep your pension pot where it is

Doing nothing at all can bide you more time to consider your options. Reaching age 55 is not a deadline to act, and delaying taking your money may give your pension pot a chance to grow, however it could go down in value too.

  1. Receive a guaranteed income for life

An annuity is effectively a lifelong, regular income that provides a fixed sum of money each year, typically for the rest of your life. A quarter of your pension pot can usually be taken tax-free, and all the annuity payments will be taxed.

You can arrange for your annuity to pay an increasing amount each year, to combat inflation. However, this will cost you more initially.

You can also buy a joint annuity that covers your spouse. This will continue to pay out (a reduced amount) after your death, for as long as they live. Again, this kind of annuity costs more.

If you have a health condition you may qualify for a more valuable enhanced annuity.

  1. Receive a flexible retirement income

You could also leave your money in your pension pot and take an income from it. Any money left in your pension pot remains invested, which may give it a chance to grow, but it could go down in value too.

A quarter of your pension pot can usually be taken tax-free, and any other withdrawals will be taxed whether you take them as income or as lump sums.

  1. Take your whole pension pot in one go

You could take the entire amount as a single lump sum. A quarter of your pension pot can usually be taken tax-free, but the rest will be taxed. You will then need to plan how you will provide an income for the rest of your retirement.

If you have a small pension pot that you don’t want to combine into your main pension, taking the whole thing as a lump sum may be a practical solution. We’d recommend talking to a professional financial adviser to see what they recommend.

  1. Take your pension pot as a number of lump sums

You can leave your money in your pension pot and take lump sums from it as and when you need it until your money runs out.

You can decide when and how much to take out, with any money left in the pension pot remaining invested. Each time you take a lump sum, normally a quarter of it is tax-free and the rest will be taxed. You may need to move into a new pension plan to do this.

  1. Choose more than one option and combine them

A more versatile approach could be to combine two or more options together. For instance, it is possible to have a combination of guaranteed income for life with a flexible income.

Beware of drawing your pension too early

The earlier you choose to access your pension pot, the smaller your potential fund and income may be for later in life. This could have a significant effect on the amount of income available to you, meaning it may be less than it could have been, and it could run out much earlier than expected.

Remember, you don’t have to do anything with your pension savings when you reach age 55; if you don’t need the money yet, you can leave it where it is. But, having a pension plan in place ready for when you do need to access your money is essential to ensure a comfortable retirement.

Seek professional financial advice

Taking an appropriate income or money from your pension is very complex. Our experienced pension advisers are always available to help you navigate your way through pension planning. We can also advise on whether a pension transfer out of a defined benefit (final salary) scheme is a suitable option to access greater freedoms, although generally, transferring out of a defined benefit scheme is not the best advice and if we don’t think it is the right thing to do we will inform you why you should leave your pension where it is.

For further information on pension planning, please call 0115 947 5545 or contact us here for a free consultation.

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